How did this happen?
The subprime mortgage situation has been brewing since the mid 1990s. The Democrats blame the Republicans, the Republicans blame the Democrats…but the truth is, we have had both Democratic and Republican presidents and congressional leadership during that time. The original idea behind subprime lending was to provide access to home mortgages to people who did not qualify for conventional mortgages. People with too much debt, not enough income or a combination of both to qualify for a mortgage took advantage of subprime mortgages. The idea was nice, but somewhat flawed. Everyone got greedy. Consumers were buying houses they could not afford using mortgages with escalating interest rates. As the payments went up, many could not pay them. Then everyone became a real estate investor. Buying and flipping properties to make a fast buck became a national pastime. It was relatively easy money, so many newcomers flocked to the Real Estate and Mortgage Banking professions. Business was good, people were making money. It made sense to go where the money was. The newfound demand steadily drove up prices…making subprime mortgages more popular with more people. With higher prices it would have been harder to qualify for a conventional loan. And on it went. Like everything else that goes to far too fast, it came to a screeching halt. As consumers started defaulting on loans, lenders tightened the reigns. It became harder to get mortgages, so demand for property declined. As demand declined, so did prices. The old law of supply and demand prevailed.